The fact that we haven't written a blog lately doesn't mean that there has not been much going on at the CFPB. In fact, we have been so consumed with working through CFPB notices and proposals, regulatory actions and settlements, that we just haven't had much time to write about them. Here is a brief synopsis of what the regulator has been brewing up for us:
On October 7th, the time period closed for commenting upon the CFPB's proposed regulation of lenders making payday loans, vehicle title pledge loans and installment loans secured by vehicle titles or utilizing ACH authorizations in connection with taking payment. This is the so-called “Small Dollar Loan” Rule. What started simply enough some four years ago, as inquiries into payday lending has turned into a proposed regulation that will drive many traditional installment lenders away from making vehicle secured sub-prime loans.
Further, we have until November 7th to comment on the CFPB's Request for Information, which is certain to open the door to an even more expansive rule affecting the non-vehicle-secured side of installment lending as well as open-end lines of credit.
Earlier, in May of this year, the CFPB released its proposed regulation addressing arbitration in consumer contracts. We had been anticipating this release since October, 2015 when the CFPB published its Outline of Proposals. Pre-dispute arbitration agreements will still be permissible under this proposed regulation, although class-action waivers will be prohibited. Companies using arbitration clauses will be required to submit their claims, awards and other information to the CFPB. The comment period on this proposed regulation is now closed. We are now awaiting the decision of the CFPB with respect to amending the Proposal, rejecting it, or adopting the same as presented May 3rd. It's a pretty good bet that the CFPB will adopt the proposed regulation as presented. To the credit of CFPB, we do think this is one of the more succinct proposals that they have put forward. The May announcement was only 377 pages.
The CFPB also jumped into the world of consumer debt collection with its publication of an Outline of Proposals, released July 28th. We have been expecting the CFPB to publish in this arena ever since its Anticipatory Notice of Proposed Rulemaking was released in November, 2013; and, particularly after its December, 2015 release of a Compliance Bulletin addressing In-Person Collection of Consumer Debt. The Outline of Proposals stays pretty true to the Fair Debt Collection Practices Act – the body of federal law that applies to third-party debt collectors, and not debt owners. However, some of the proposals under consideration will impact debt owners, such as the requirement for the substantiation of data. And with the July release, the subject of “field calling” – and what to do about it -- was again brought to the attention of the finance industry.
And, back to this month, on October 3rd, the Department of Defense's Military Lending Act Regulation became finally and fully effective. This is the Regulation that makes almost all consumer loans to active duty military and their families subject to a 36% MAPR cap. The Regulation started out 10 years ago with application to payday loans, title pledge loans and refund anticipation loans. It now limits the rate of interest that may be used in loans to Covered Borrowers – effectively carving out a large segment of sub-prime borrowers. The CFPB was the first to congratulate the Secretary of Defense on the adoption of the Regulation. We will know very soon whether this limitation on rate turns out to be a regulatory step taken too far.